Months 1 and 2
The process is time consuming because the short sale lender is trying to determine the hardship of current borrower, and why they can no longer repay the loan. This hardship can be a number of things, such as loss of income, divorce, military transfer orders, job relocation, etc. The current borrower gives all of their financial documents to the short sale lender just as they did when they applied for the loan. Once it is established that the current borrower can no longer repay the obligation, the short sale lender will entertain the offer from the new buyer.
Most short sales listings are price at or below Fair Market Value, buyers usually tend to want to make a lower offer than asking price. This can cause problems during the process if your buyer is not well informed. Say the fair market value for the home is $200,000, and the price has been reduced to $175,000 before an offer has been made, then the buyer makes offer of $150,000 then the contract is presented to the short sale lender. The short sale lender will order an appraisal on the property and if the appraisal comes back with a value of $180,000 the short sale lender has an option to counter an offer to the buyer. This happens quite often and the buyer either comes up to the price or walks away from the contract.
Once the short sale lender has approved the short sale “in writing” the buyer will have 30 to 45 days to close on the property. Short sale property's are sold “as is” with the right to inspect. Once the inspection is complete and satisfactory to the buyer, the closing process will continue with an appraisal from their lender, survey, termite inspection, etc.
The closing should take place.
This is the process to a short sale closing, buyers should be informed that the price on the contract can be countered by the short sale lender, buyers should be educated about the current market value of the property so they will not be surprised if the price is countered.
The example presented here is a very simple process, most short sales do not go this smoothly, buyers should be prepared for longer time frames especially if the borrower (seller) owes more than $775,000 on the mortgage. Mortgage balances higher than $775,000 can take 6 months to a year for approval.
Bev Dudley, Realtor